1. Field of the Invention
The present invention relates generally to an apparatus and method for optimizing insurance policies. More particularly, the present invention relates to an apparatus and method for identifying coverage discrepancies in credit insurance policies, managing the process of obtaining the maximum amount of desired coverage from credit insurance policies, actively monitoring credit insurance policies to determine whether a customer's coverage goals are being met, actively monitoring, customers' and debtors' activities to identify any compliance issues with the terms and conditions of credit insurance policies, automating the processes required to obtain/retain the coverage required to meet a customer's coverage goals, and automating the processes required to obtain/retain compliance with the terms and conditions of credit insurance policies.
2. Background of the Related Art
Business credit insurance, or trade credit insurance, (hereinafter referred to more generally as “credit insurance”) is an insurance policy and/or risk management product that businesses purchase to insure payment of any credit extended by that business (i.e., their accounts receivable). In other words, credit insurance is insurance that covers the payment risk resulting from the delivery of goods or services. Credit insurance typically covers a portfolio of a business's debtors and pays a predetermined percentage of a credit that remains unpaid as a result of certain debtor activity, such as protracted default, insolvency, or bankruptcy.
Credit insurance is a very powerful tool, capable of providing tremendous protection and value for businesses. However, like all powerful tools, it requires proper maintenance and management to deliver optimal results. More specifically, credit insurance not only requires significant maintenance and management, most policyholders do not realize what the requirements of their policies are or how to comply with those requirements. Nor do policyholders have the resources available to perform the functions necessary to identify and comply with those requirements. As a result, a majority of policyholders are not receiving the full desired protection and value from their credit insurance policies. In other words, their credit insurance policies are not optimized.
Optimized credit insurance policies generally include three primary features: 1) they provide the maximum amount of coverage desired by the policyholder, 2) they ensure the payability of covered claims, and 3) they provide the maximum coverage available relative to the premium paid (i.e., they maximize the coverage/premium ratio). And as discussed in more detail below, conventional credit insurance policies typically lack one or more of those features. Accordingly, conventional credit insurance policies are not optimized.
Credit Insurance Coverage
Many credit insurance programs do not provide the maximum coverage desired by the policyholder due to non-optimal coverage issues, such as cancelled coverage, denied coverage, out-of-compliance Discretionary Credit Limit (DCL) coverage, etc. Some of those problems have arisen as a result of credit insurers changing their risk tolerance in response to the economic downturn in the late 2000s, which is reflected in the changes credit insurers have made to their underwriting guidelines. For example, it used to be the default position of credit insurers to offer coverage to a potential policyholder unless the credit insurer had negative information on that potential policyholder's debtors. But now it is the default position of credit insurers to NOT provide coverage to a potential policyholder unless the credit insurer has good information about that potential policyholder's debtors. Therefore, the responsibility of telling credit insurers why coverage should be provided is now on the policyholder or potential policyholder.
In many cases, to justify why coverage should be provided, the policyholder or potential policyholder must provide financial information to a credit insurer, such as Cash Flow Statements, Balance Sheets, and Income Statements for each debtor that coverage is needed. That is generally not a simple task because many debtors are private companies, from which it typically requires substantial time and effort to obtain financial information. In addition, when the debtors are foreign, those financial statements must also be translated to English, or U.S. Generally Accepted Accounting Principles (GAAP) standards, to enable underwriters to make their decision whether to cover those debtors. Accordingly, policyholders and potential policyholders must now allocate significant time and resources to obtain credit insurance.
Even where a debtor is a public company or otherwise has readily accessible financial statements, there are still other challenges that require potential policyholders to allocate significant time and resources to obtain credit insurance. For example, credit insurers are now subject to more challenges for reinsuring their portfolios. In other words, many coverages that otherwise would have been previously granted are not being granted and, as a result, the capacity of credit insurers to provide certain coverages has been diminished. Accordingly, potential policyholders are often unable to obtain the total amount of desired coverage from a single credit insurer.
Payability of Credit Insurance Claims
Obtaining payment for a claim often presents a significant challenge in the credit insurance industry. As a result, a significant percentage of all claims submitted to the credit insurers are denied. According to some reports, almost 50% of submitted claims are initially denied by credit insurers. And most of those initial denials come as a surprise to the policyholder who is filing those claims. That is because of the complexity of most credit insurance policies.
In more detail, credit insurance policies typically include a plethora of terms and conditions with which a policyholder must comply to ensure that the policy is valid and any claims thereon are payable. For example, there are over fifteen pages of detailed descriptions in most credit insurance policies that set forth various terms and conditions that must be satisfied in order for the credit insurer to remain obligated to pay a claim. In other words, most credit insurance policies include over fifteen pages of reasons why a credit insurer will NOT be required to pay a policyholder's claim. And more often than not, those terms and conditions are not even known by the policyholder, which is why policyholders are often surprised to discover that their claims are not payable due to the failure to satisfy one or more of those terms and/or conditions.
Even when a policyholder is aware of the plethora of terms and conditions that must be satisfied for a claim to be payable, the amount of time and resources required to properly comply with those terms and conditions is too great and, despite the policyholder's best efforts, they are still unable to satisfy those terms and conditions. For example, a condition that one of the largest and most well-respected credit insurers puts on their policyholders requires the filing and acceptance of accounts receivable over $10K that are past due 60 days or more for any named debtor, regardless of the upper limit of the credit insurance policy. In other words, if any amount over $10K is more than 60 days past due and has not been properly filed and recognized by the credit insurer, then the entire limit for that debtor is not eligible for a claims payment (i.e., the limit is cancelled). It is compliance issues such as those that prevent most policyholders from obtaining payment for their credit insurance claims. And as in most cases of compliance, that problem is exacerbated by the fact that the policyholder typically will not realize that it did not comply with a term and/or condition until after it files its claim, at which point their coverage will have already been canceled and the claim therefore denied.
Credit Insurance Premium
Because there are often multiple credit insurance and credit protection solutions available to potential policyholders, it is often difficult to determine the availability and coverage of those products at the right prices. More specifically, finding the right availability and coverage at the optimum price is a manual process that requires a significant amount of work, which often does not get done due to time restrictions. Moreover, a manual attempt by a broker, or by a potential policyholder, often results in human error. Accordingly, potential policyholders often do not obtain the credit insurance programs that are the best for their needs.
The difficulty in finding the right availability and coverage at the best price is further exacerbated by the fact that the carriers and providers of credit insurance products are always changing the availability and rates for those products, with their ability and/or willingness to take on certain debtors and their price tolerances changing on an almost daily basis. Moreover, the difficulty of manually sorting through the different credit insurance products offered by different carriers and providers means that those carriers and providers often do not have to compete for a policyholder's or potential policyholder's business. In other words, it is often too burdensome for a policyholder or potential policyholder to compare different credit insurance products to one another and make an educated guess as to which product to purchase. Accordingly, policyholders and potential policyholders rarely obtain a credit insurance policy that provides the maximum amount of coverage desired for the price that they are paying.
In view of the above problems with conventional credit insurance policies, and as will become more evident from the advantages of the present invention discussed below, there is a need in the art for an apparatus and method for digitally processing various terms and conditions and continuously monitoring a customer's compliance with those terms and conditions. More particularly, there is a need for an apparatus and method that enables potential policyholders to obtain a credit insurance policy with the maximum amount of coverage desired, the maximum payability of covered claims, and the maximum coverage available relative to the premium paid. And that apparatus and method preferably operate in real time so as to ensure that the credit insurance policy is optimized for the policyholder in an ongoing manner after it has obtained the desired credit insurance policy or policies.